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After the Crisis: The need for a new monetary system. Interview with James Robertson
The interview with James Robertson is part of the ongoing discussion on Beyond Economics Development Vol 52 no 3 leading up to the journal launch events in New York (29 October 2009) and The Hague (11 December 2009).
Q: In your paper, you identify the root cause of the current crisis in the way the money system works. You advocate for an international currency to replace the dollar in international transactions. What benefits would this bring?
A: The root cause at the national level is that we give commercial banks the privilege of creating and issuing almost all the money supply into circulation, as profitable debt in the form of loans to their customers ('credit'). This encourages the banks - even compels them (1) - to create too much money in the booms and then too little in the busts. It also distorts the national and international economies in favour of the banks and their most profitable customers. The necessary solution is to nationalize, not the banks themselves, but the national money supply - bank-account money as well as banknotes and coins. We should transfer to an operationally independent public agency - the central bank - the function of creating it and giving it to the government to spend into circulation. (Other proposals to stop the crises recurring - international jobs-for-the-boys regulation of banks' capital, bonuses, etc - will be top-heavy, costly, messy to introduce, and will fail.) The international economy needs a parallel reform. In the past two centuries it has depended for its currency first on the pound sterling, then on the US dollar. This has increased the economic dominance of Britain and then America over other countries. In the twenty-first century, instead of relying on any national (or regional, like the euro) profit-making debt-based currency, the world needs a genuinely international debt-free currency. Especially if combined with necessary developments and reforms of taxation and public spending at UN and national levels, this would treat all people and all countries more equally, and would help them to meet the new challenges of world development. (See Answer 4.)
Q: At the national level, you suggest that crises are generated by money being created as debt. What does this entail?
A: When money created as an interest-bearing, profit-making debt is repaid to the bank that lent it, that money ceases to exist; it is written off the bank's balance sheet, both as a liability and as an asset. But the money paid as interest to the bank for the loan continues to circulate. Whoever that money came from, more money must now be lent into existence to compensate for it. So this way of creating the money supply keeps us on an unstoppable treadmill of rising indebtedness. That drives almost everyone to endless competitive economic growth and consumption of planetary resources in order to avoid financial collapse. It also drives a continually widening gap between rich and poor people, places, and countries, because in general the rich benefit from being able to lend money and the poor suffer from needing to borrow it.
Q: What public spending reforms should be implemented in order for everyone, even the most marginalized, to benefit from them?
A: A growing number of people in many countries support a reform to provide every citizen directly with a basic Citizen's Income as a right of citizenship. It will enable many people worldwide to look after themselves and one another better than they can today, and enable some countries to cut their present spending on government and big business to provide citizens with impersonal top-down benefits and services. This principle applies to all countries, because it reflects the right of citizens to a share in the value of common resources - value which is not due to the work, enterprise and skill of any particular organization or person, but reflects the characteristics of natural resources (e.g. the location of land) and the activities and demands of society as a whole. That is why it will make sense to finance the Citizen's Income by a tax shift, away from taxing incomes and profits earned by contributing to society, and instead taxing the value derived from common resources like the value of land and the environment.
Q: You started your career 50 years ago in the British Colonial Office. You say that today you are less hopeful about development prospects. What aspect worries you in particular?
A: Our collective leadership in the mainstream walks of life, professions and disciplines concerned with world development fails to communicate confidence in our ability to resolve the crises we face. Humanity is now an endangered species. Our growing numbers, combined with our present way of life and the aspiration of billions more to enjoy it, are destroying our planetary habitat. Supplies of food, drinkable water, energy and other necessities are threatened by congestion, climate change, overuse of land and its erosion, pollution of land, sea and air, and the exhaustion and destruction of natural resources like oil and forests. Increasing competition and conflict for resources could accelerate a combined collapse of social and ecological systems. A malfunctioning worldwide money system driving us in the wrong direction is one of the vital problems. Solving other vital problems too - such as population numbers, and effective human self-government - will be necessary conditions for avoiding species' suicide. It isn't easy to see immediately where our ability to solve these problems is going to come from. (1) 'As long as the music is playing, you've got to get up and dance' - Chuck Prince, the sacked Chairman/CEO, explaining why Citibank would have gone bust in 2007, if it hadn't been bailed out by the US government.
Interview by Laura Fano Morrissey
Click here to read the abstract of James Robertson's article in Development 52.3.
James Robertson is an independent writer and activist on economic alternatives (www.jamesrobertson.com). In 1984 he co-founded the New Economics Foundation (NEF) in London. His latest book is The History of Money: From Its Origins to Our Time.